EBS sets sights on running central system for FX fix

Patrick Graham

3 Min Read

LONDON (Reuters) - Currency trading platform EBS has been approached by major banks to provide a computerized system removing much of the human element behind a scandal over the manipulation of currency benchmarks by lenders, a senior EBS manager said.

A sign displaying currency exchange rates is pictured at a retail currency exchange location in New York City, March 12, 2015. REUTERS/Mike Segar

Such a facility has been discussed for some time as a way of reducing the risk of sensitive client order information seeping out and increasing the scope for wrongdoing in the trades that set benchmark exchange rates used to value trillions of dollars of investments daily.

EBS, one of the main venues for banks and other large financial institutions to trade currencies, launched its eFix solution last year to help banks to match off their orders to buy and sell currencies at the daily “fixings”.

That stops short of the outright central facility looked at by the Financial Stability Board (FSB) last year to take in, net off and process orders anonymously and independently of the bank trading desks at the center of a two-year long row over market manipulation.

But it might give EBS the critical mass to launch what could become the main venue for such activity.

“EBS Market is well positioned to play the role of a central utility for the execution of benchmarks globally,” Darryl Hooker, head of EBS Market, the platform’s main product suite, told Reuters.

“We’ve been approached by a number of the major banks with regard to providing a netting facility to our eFix solution.”

The FSB’s final recommendations last year abandoned the idea of ordering the creation of a fixing utility, saying that it saw the potential for the market to generate such a solution without official intervention.

A number of financial technology companies and exchanges have expressed interest, though the task is complicated by the need to get enough banks on board to ensure sufficient demand on both sides to match off most buy and sell orders.

Another problem is how to deal with residuals: situations where a large number of sell orders are not matched on a given day by equivalent buying interest, leaving the facility or the asset managers behind the orders holding the risk of a failure to execute or of execution at worse rates.

Hooker was careful not to be drawn on the details of how EBS would deal with this issue, but it is generally assumed that it would involve at least one large bank standing behind the facility to absorb the risk.

EBS, which has never been accused of any wrongdoing in the foreign-exchange scandal, is wholly-owned by inter-dealer broker ICAP IAP.L. The other major currency trading platforms are provided by Thomson Reuters (TRI.TO).